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The mobile-payment processor has lost another regulatory fight,
this time in Florida, where it agreed to pay a $507,000 fine to settle
charges it operated in that state without a money-transmission
license.

Square has been the subject of such spats before, in its home
state of California and Illinois, where it actually faced a
high-profile cease-and-desist order before getting a license.

There remains a valid legal question to these licensure fights:
Since Square simply processes payment information, and doesn’t
actually transmit money itself, why should it have to fall under
the transmission regulations of all 50 states?

Presumably, Square has made a decision that, rather than fight
each jurisdiction, it will just bend a knee before the
regulators, pay whatever fees it needs to in order to fall under
their framework, and happily go about its business. Indeed, it
has big plans, and there is a good
business reason for the company to not stand its ground and
fight back.

Still, the controversy over Square regulation remains troubling
for those outside the company, particularly those entrepreneurs
with financial businesses who want to operate across the nation.

For one thing, Square’s acquiescence leaves the legal issues
unresolved. Square was not a money transmitter by any definition.
True, its business changed somewhat when it unveiled plans to get
into the gift-card business, but the Florida action doesn’t
address that move. The fine Square is paying covers a period of
time from February 2010 to November 2012 when it was simply
processing transactions.

Square could have avoided the fine by fighting its case. That
could have led to a precedent that it could use in navigating the
Byzantine regulatory frameworks financial-services companies face
wherever they do business. Instead, it coughed up $507,000 –
small beer to a company that has raised well north of $300
million – and left the fight to others. (To be fair, Square isn’t
alone. In its infancy, PayPal decided such a battle wasn’t worth
its trouble either.)

In addition to not settling the law, Square’s surrender doesn’t
allow us to address a key point of the regulations themselves:
What ill befell the citizens of Florida from 2010 to 2012 because
Square operated without a license? Proponents of regulations like
to point out that government’s role is to protect citizens from
harm, particularly from greedy businessmen who pick pockets and
poison kittens on their way to the top. Government’s noble role
is necessary to keep free enterprise from giving in to its baser
nature when the sun goes down.

But no one can say that Square did anything wrong – or was even
in a position to – in Florida or any other state. It processed
transactions for merchants and took a cut off the top. It didn’t
hold a single dollar, ruble, Deutsche mark or Bitcoin along the
way. Merchants could have screwed their customers, and banks
could have screwed their merchants, but Square was chaste.

Still, asking if someone is actually harmed is no longer a litmus
test for the promulgation of regulations. In this case, existing
laws never anticipated a company like Square in the first place –
a testament to Jack Dorsey’s innovation. Faced with something
they had never seen before, regulators decided to pound this
Square peg into Florida’s round holes and declare victory.

It could have been worse – and may still be. One could argue this
is the best-case scenario, since lawmakers always have the option
of creating new laws which lead to the promulgation of new
regulations that are often worse than the ones before. Rarely is
there true reform when it comes to laws and regulations. Rather,
there is addition. Only in the legislative world does one ease a
burden by adding more weight.

Square, for its part, no doubt made the right move for business
reasons. But one can’t help but despair of the missed opportunity
to make regulators stop bullying entrepreneurs whose innovations
are light-years ahead of our regulatory framework. Until some
company or business owner draws a line in that sand, businesses
will be at more risk of harm than the consumers our lawmakers and
bureaucrats seem so eager to protect.